DeFi Sector Primed for Growth Amid Shifting Market Dynamics
As Bitcoin (BTC) dominated the crypto market throughout 2024, a shift may be underway as investors explore new opportunities in decentralized finance (DeFi), according to a recent report from Kaiko Research. Analysts suggest that increasing regulatory clarity and sector-specific catalysts could drive renewed interest in DeFi projects.
Kaiko analysts Adam McCarthy and Dessislava Aubert highlighted the sector’s resilience, noting that the firm’s DeFi index (KSDEFI) has outperformed Ethereum (ETH) since its launch in October 2023, delivering approximately 75% returns. This performance is particularly noteworthy given that many of the index’s projects are built on Ethereum.
“This trend of outperformance could persist into the latter half of 2025, as several assets in the index continue to benefit from strong momentum,” the report stated. “The growing independence of the DeFi index from ETH underscores the sector’s expansion beyond Ethereum’s ecosystem.”
The KSDEFI index tracks 11 major DeFi tokens, with Uniswap (UNI), Aave (AAVE), and Ondo Finance (ONDO) among the most heavily weighted. At least four of the index’s components are positioned for potential upside in 2025, the report added.
For instance, potential regulatory changes in the U.S. could pave the way for Uniswap and Aave to activate fee-switch mechanisms, which would allow protocol revenues to be distributed to UNI and AAVE holders. Meanwhile, Ondo Finance is poised to benefit from Wall Street’s increasing adoption of tokenized assets.
“Regulatory uncertainty has long been a challenge for DeFi, alongside high transaction costs and security concerns,” the report concluded. “However, with the regulatory environment stabilizing, the sector is well-positioned for a new phase of growth.”
